Insurance Regulatory Capital

The number of M&A deals may be set to decrease, but insurers and investors will increasingly be looking to snap up higher-value insurance acquisitions.

Are you planning to undertake an acquisition over the next year or two? IRC’s Solvency II eligible sub debt product is the ideal product to capitalise such growth ambitions. Additionally our LIBRA product provides capital flexibility to complete such transactions swiftly and efficiently.

Solvency II drives demand for new Maiden Re product

A new product launched by Maiden Re that allows insurers with limited access to the capital markets pre-committed access to subordinated debt funding will be particularly valuable to companies because regulations such as Solvency II force insurers to disclose their solvency ratio, according to the reinsurer’s CEO.

MCR Shock – testing the strength of the SCR coverage ratio

Under Solvency II, the SCR coverage ratio has become the de-facto measure of an insurer’s capital strength. But how reliable an indicator is it? Cat Drummond, Partner at LCP, explores the capital resilience of the top non-life insurers int he UK and Ireland by testing their SCR coverage ratio against an MCR shock.

99 insurers sailing close to the wind

Analysis of 1,600 solo firms collected and processed by Solvency II Wire Data reveals that 21 firms breached their SCR ratio as of 31 December 2016. This article gives an analysis of the lower end of the SCR ratio spectrum.

Maiden Libra- a new way to balance risk and capital

Libra is the well-known astrological symbol of balance. Patrick Haveron, President of Maiden Re, explains how Maiden Libra, it’s unique hybrid capital solution can help small to mid-size insurers keep their risk/capital balance in an increasingly tough and uncertain operating environment

Insurers plan greater exposure to private assets

Insurers plan to shift their investment from public markets to private assets in an effort to boost profits while not adding risk to their portfolios

EIOPA to Focus on Stress Tests, Data Disclosure in 2018

EIOPA will focus next year on carrying out stress-testing of firms, disclosing more information about their capital reserves and pushing more information into the public domain.

Solvency II Wire: Topsy-Turvy SCR Ratios

Daragh Clune, Chief Investment Officer at IRC, on why the Solvency II SCR ratio can sometime be higher than the MCR ratio.

Analysis of the Solvency II public disclosures in the German market (Solvency II Wire 14/6/2017) uncovered a number of firms with a lower MCR ratio (Minimum Capital Requirement) than SCR ratio (Solvency Capital Requirement). This is surprising given that the MCR is the lower of the two capital requirements and it would be expected that the MCR ratio would be higher (see The SCR: early warning system or panic button?).

EIOPA publishes first Risk Dashboard under Solvency II

On 28 February 2017 EIOPA published its new Risk Dashboard for the first time since the implementation of the Solvency II regime. Although Solvency II implied a major change in the methodological framework for the calculation of the solvency capital requirements, the initial transition to the new regime appears to have gone smoothly. The results for the third-quarter 2016 show that the low-yield environment and market risks continue to be a major challenge for the European insurance sector according to EIOPA.
The dashboard is a quarterly publication summarising the main risks and vulnerabilities in the European insurance sector by using a set of indicators grouped into seven risk categories: macro risks, credit risks, market risks, liquidity and funding risks, profitability and solvency risks, interlinkages and imbalances risks and insurance (underwriting) risks. An additional category “market perceptions” gives insight on how the insurance industry is perceived by financial markets.

EIOPA publishes results of 2016 Insurance Stress Tests

EIOPA published the results of their most recent stress test exercise on 15 December. These stress tests represent one of the regular supervisory tools that help to assess the resilience of the insurance sector to potential adverse market developments. The tests covered 236 life companies in 30 countries and the results were published on an aggregated basis rather than company by company.

Are you ready for the Pillar 3 public disclosures under Solvency II?

The Pillar 3 disclosures will be made in 2017 but based on the year-end 2016 balance sheet. This imminent public disclosure has led to many firms starting to assess the adequacy of their capital levels, solvency and risk management while bearing in mind that their figures will be directly compared to that of their peer groups.

A false dawn for restricted tier 1 debt?

The market for restricted tier 1 debt was kick-started last month with an issue by Gjensidige, the Norwegian insurer, who sold NOK1bn in restricted tier 1 notes. Insurance Regulatory Capital discussed the market with Insurance ERM.

Should you include Brexit in your Risk Register?

The upcoming referendum in the UK on June 23rd to determine whether the UK will leave the EU will almost certainly impact either directly or indirectly on your business.

Solvency II Ratios Move Into the Spotlight

According to Fitch, the rating agency, investors in insurance companies have begun to use SCR data to analyse not only the financial strength of the companies they have invested in, but also the efficiency of capital use and as a comparator to other companies in the sector.

Long term capital partnerships create value

Owners of insurers are now seeing the emergence of capital partners willing to provide a mix of eligible sub debt and collateralised quota share reinsurance over the long term.

Fewer than half of EU insurers have a coordinated approach to capital management

Fewer than half of European insurers have a dedicated capital management department, according to Deloitte’s 2016 EMEA Capital Management in Insurance Survey. Optimising capital under solvency II will be the key area for capital management over the next 5 years.

UK Non-Life results show impact of different underwriting risk strategies on SII

UK non-life insurance results highlight the significant impact that different investment and underwriting risk strategies have on Solvency II (SII) capital ratios, according to Fitch Ratings.

Driverless cars likely to impact traditional capital structures of motor insurers

Last week, the US Department of Transportation’s National Highway Traffic Safety Administration (NHTSA), wrote to Google, saying it will now consider the computer and software in ta self-driving car as the “driver”.

EIOPA seeks to promote dialogue between Regulators and Audit Firms under Solvency II

On the 3rd of February, 2016 EIOPA published a consultation paper seeking views on facilitating an effective dialogue between auditors that carry out statutory audit of (re) insurance companies and the relevant Insurance Regulator.

BoE insurance supervisor says EU capital rules off to smooth start

The introduction of new European Union rules forcing insurers to hold enough capital to protect policyholders has gone well though some tweaks will be needed, Britain’s top insurance regulator said on Wednesday.

There has been concern among regulators about potential volatility in insurance company shares as investors compare the solvency capital ratio (SCR), a new core benchmark of health, that insurers now have to publish.

Challenges and opportunities for the insurance industry in 2016

In the regulatory world, we will be looking to see the agenda of a new FCA CEO, how Solvency II develops and settles and whether the international agenda of prudential regulation slows or speeds up

Solvency II – Going Live!

On 1 January 2016, the new supervisory framework for insurance and reinsurance companies – Solvency II – has become applicable.

Solvency II and Mutuals; How 2016 will change the way mutuals are run

The new capital regulation has left an indelible mark on mutual business models. This article assess the impact and asks what will happen after 1^st Jan 20.

The state of Solvency II transposition

On the eve of entry into force of Solvency II, Solvency II Wire can reveal the state of transposition of the Directive into national law.

EIOPA provides update on consumer trends

The European Insurance and Occupational Pensions Authority (EIOPA) published today its 4th annual Consumer Trends Report for the European Economic Area.

Solvency II compliance imminent: Regulatory harmonisation delayed.

While all European insurers are required to be compliant with the Europe wide risk-based system by January 1 2016, EIOPA has allowed Insurance Regulators significant leeway in both how and when they implement the new Solvency II standard.

More Progress on Solvency II decisions needed: ABI

Faster progress on which countries are granted group equivalence under Solvency II is needed, said the Association of British Insurers (ABI).

Publication of legislation transposing Solvency II into Irish Law

On 4th November, The Minister for Finance signed the Statutory Instrument (S.I. 485 of 2015) which transposes the Solvency II Directive into Irish law.

Reinsurance or Subordinated Debt? Why not both

Under Solvency II the landscape changes dramatically, given that it can be a great help for insurance companies, particularly for small companies and mutual insurance companies, in their necessary commitment to increasing competitiveness and to reinforce and/or protect their solvency capital.

EIOPA and supervisory convergence – the beginning of a new journey

Speech by Gabriel Bernardino, Chairman of EIOPA, at the 5th Annual Conference of EIOPA in Frankfurt

Bafin planning to gold-plate asset rules, insurers claim

German insurers believe investment limits will be applied after 2016, despite expectations that Solvency II would sweep them away

Mesa Redonda De ‘Actualidad Aseguradora’ en colaboracion con Maiden

Hasta ahora, las emisiones de deuda subordinada estan siendo un instrumento muy poco utilizado en nuestro pais para mejorar el capital.

AM Best Report: European Insurance Markets Display Early Recovery Signs but Regulatory Issues Brew

Europe’s largest insurance markets have continued to show some signs of recovery, with many experiencing top-line growth. In general, the increases in total gross written premium (GWP) come following a number of years muted development and even decline, and there is a sense of optimism that this momentum will continue.

Sub-debt offers mid-sized insurers another capital option

Oliver Tattan explains the benefits of subordinated debt to under Solvency II’s solvency capital ratio requirements

Focus on Europe as Solvency II drives demand for capital solutions

The EU’s incoming regime will make subordinated debt a very attractive proposition for mid-size insurers

Setting an Appropriate Target SCR Ratio

Publishing SCR data will allow insurers in all Solvency II jurisdictions to be compared on exactly the same parameters.

Update on EIOPA’s Action Plan 2016 and Way Forward for Colleges of Supervisors

The European Insurance and Occupational Pensions Authority (EIOPA) has published today an updated Action Plan 2016 and Way Forward for Colleges of Supervisors.

EIOPA advises to set up a new asset class for high-quality infrastructure investments under Solvency II

The proposed approach meaningfully reduces risk charges for qualifying infrastructure project investments in equity and debt.

Maiden Re looks to Europe

From ReactionsNet.com’s Rendez-vous Reporter: “Maiden Re’s collateralised reinsurance solutions are available throughout the EU to help insurance companies comply with the coming Solvency II requirements”, says Pat Haveron, President of Maiden Reinsurance.

Solvency II to feed subordinated debt demand

From ReactionsNet.com’s Rendez-vous Reporter: “Insurers have been advised by Regulators not to wait until the last minute before understanding their capital requirements and securing capital”, says Oliver Tattan, CEO of Insurance Regulatory Capital.

Capital Solutions for the Solvency II era

From ReactionsNet.com’s Rendez-vous Reporter: “As Solvency II takes effect, we believe our collateralised reinsurance offering will provide cedants with greater capital credit.”, says Pat Haveron, President of Maiden Reinsurance.

Maiden Re steers a specialist course

From ReactionsNet.com’s Rendez-vous Reporter: “The trend for industry consolidation may benefit Maiden Re as it allows the reinsurer to be more nimble than its competitors”, says Art Raschbaum, Maiden Re’s CEO.

“Crunch Time for European insurers on capital rules”, Financial Times

“A long-awaited overhaul of financial safety standards is within sight, with far-reaching implications for the €8.4tn industry.”

Oliver Tattan quoted in Bloomberg

“There are more investors interested in this kind of product [subordinated debt], providing capital to insurance companies,” said Oliver Tattan, CEO of Insurance Regulatory Capital.

“Concerns remain for captives under Solvency II but risk management benefits embraced”, AM Best

Specialist insurers such as captives are ‘not well-catered for’ by Solvency II’s standard formula which is adding to the need for European captives to change the way they are managed, according to a new report by AM Best.

“Vigilance in the run-up to Solvency II”, Insurance Day

“With Solvency II just around the corner, the market is addressing a number of issues, not least whether the US, Bermuda and other jurisdictions will be granted reinsurance equivalence status in time, according to Martin Membery, one of London’s leading insurance regulatory, corporate restructuring and M&A lawyers.”

UK regulator publishes senior manager rules, August 17

UK watchdog the Prudential Regulation Authority (PRA) has published its final version of the Senior Insurance Managers Regime (SIMR), which will introduce what experts have described as a far more complex set of rules for insurers.

The drivers for the new regime include the need to bring the UK in line with Solvency II, which comes into effect on 1 January 2016.

EIOPA published the user manual to complement the Solvency II risk-free interest rate (RFR) coding publication

The User Manual contains the steps on how to carry out the calculations through the published RFR coding. Using the manual, the aim of the exercise is to collect input from stakeholders that would help improve the coding and spot possible errors.

InFinance.nl article [Dutch]: “Meer achtergesteld kapitaal bij verzekeraars”

“Achtergestelde schulden komen in aanmerking als reglementair kapitaal onder Solvency II”

IRC’s response to EIOPA note: “Need for high quality public disclosure on solvency”

EIOPA recently published a note (found here) on the need for high quality public disclosures by insurers of their financial health parameters, particularly their SCR coverage.

Sub debt approved as regulatory capital for mutual insurers

Subordinated debt is a prudent approach for mutual insurance companies seeking to ensure judicious capital management and maintenance. It is a structural and long term solution for a mutual’s capital requirements.
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The case for subordinated debt

With the advent of Solvency II, it is imperative that executive management considers more carefully their company’s access to sources of capital. Insurance Regulatory Capital offers capital solutions through acting as a conduit between insurers and investors.
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How sub debt can fulfil regulatory requirements under Solvency II

Subordinated debt has been pre-approved by European Insurance Regulators to function as regulatory capital under Solvency II. Priced lower than equity but with many similar qualities, cash is transferred directly to the issuing insurer’s balance sheet.
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Investor appetite for high-value insurance M&A increasing – WTW